Universiti Technology Mara

Risk and value management

adapted on Petronas project in
malaysia

construction management (cpa703)

written by : Baiq trya yulian putri (2022822484)

TABLE OF CONTENT

01. Introduction

02. Discussion

02. Value Management

03. Risk Management

04. Value and Risk Management

Findings

05. Conclusion

06. references
INTRODUCTION
Construction projects have increased due to the
growing population in emerging nations. Primary
living conditions are made possible thanks
largely to the construction (building) industry.
Construction projects' effectiveness, cost, and
timeline are crucial for quantifying this industry.
In addition, the building sector is undergoing
significant changes to satisfy many emerging
nations' economic and good quality objectives.
The government's long-term objectives depend on
current construction projects becoming more
Value and Risk Management adaptable.
Construction projects thus continue to experience
significant issues, such as difficulty meeting
project timelines, execution delays, budget
overruns, and poor management. .

However, efforts to look into funding for construction

development projects still need to be more productive.
Because of the mismatch between the building industry,
many developing nations' governments, consumers, and
management, the sector needs to catch up to industrialised
countries. Consequently, value management is a crucial
concept designed to establish and improve the
understanding of its application at the outset of a project
Construction projects are more likely to fail because of the
inherent high level of risk, according to a smart market
report by Dodge Data and Analytics (2017). Contractors
may get numb to the wide range of problems they deal with
daily since risks are so regular. As a result, contractors far
too frequently accept the high risk as a necessary working
condition (Dodge Data and Analytics, 2017). Effective risk
management strategies are now more important than ever
due to the need for increased contractual commitments and
better performance in building projects. Thus, RM must help
identify the various project objectives during the planning
and execution phases, improve project control, raise the
likelihood that the project will succeed, enhance
coordination among project participants, and support
decision-making.

Value Management is a structured team approach created to

evaluate a process, facilitate duties and expectations, and
lower costs during a project to satisfy the crucial customer-
defined functions for the least amount of money while
maintaining quality standards. Value management
assessments are also started early to attain a complete
project and save time. Value Management is seen as a cost
reduction tool and a cost optimisation strategy even when
investment and cost are the key aims of adoption. The
project's cost would be maintained at the expense of its
viability and objectives, reducing its value. The goals of value
management are to achieve predicted value at lower costs
without sacrificing the building's dependability and
performance.
 DISCUSSION

1. Value and Risk Management Study Case

In Malaysia, the processing and transmission of natural gas are

handled by Petronas Gas Berhad (PGB). This project builds gas
processing plants and pipelines to process and transmit gas in
Peninsular Malaysia. Its implementation is broken down into PGU I, II,
and III. The PGU project pipes raw natural gas from 160-240 km
offshore from Terengganu to Kertih. It sends it to the Gas Processing
Plants (GPP) to be processed into methane, propane, butane, ethane,
and heavy hydrocarbons or condensates. The PGU pipeline delivers
PETRONAS' processed gas to Tenaga Nasional, the independent
power producer (IPP), petrochemical plants, Gas Malaysia, and other
industrial users. PGB has four 1,000 mmscfd GPPs and 1,065km of
transmission pipelines in Peninsular Malaysia. PGU III will include six
GPPs with 2,000 mmscfd capacity and over 2,000 km of transmission
pipelines. PGB's revenue comes from PETRONAS' throughput fees.

PROBLEM IDENTIFICATION :
Management's strategic decisions must satisfy shareholders' financial
goals. Most organisations, including PGB, made accounting-based
decisions that destroyed value without realising it. PGB's value can be
increased via better investment decisions. Management needs a better
way to measure financial performance—this way of measuring needs
to be added to PGB. PGB's performance evaluations based on EPS
and PIE are affected by two factors. First, US company EPS growth
and PIE multiples were unrelated in research. EPS might rise while its
value falls. This indicates that stock market pricing is influenced by
management credibility, corporate growth potential, and earnings
performance. Second, EPS-based measurement separated Market
Value from Balance Sheet items, including total assets, debt, and
equity. Thus, it is impossible to quantify whether invested capital
creates value for investors. Market Value and other metrics like ROA
and ROE are used to determine value creation or destruction. This
leads to another "Managing the VM approach". Since the quality of
ROA and ROE have also come into doubt due to the reliability of
"Return," there have been problems. Such as Correlate with value
production, providing a clear picture of corporate performance,
encouraging value-creating investments, and using the cost of capital
as an analytical criterion. VM and RM Were adapted using The metric
that should be easily derived from financial results, easy to calculate,
and accepted by all stakeholders in the organisation without
substantial change management; they make connections to the
income statement and the balance sheet. It shouldn't only focus on
Profit and Loss performance. Be able to fit into different strategic
plans so that decisions can be made based on which method creates
the most value. Be practical as performance goals. Internal or
external attitudes shouldn't alter the indicator. In the past, PGB has
used its funds to start new projects. But because there needs to be
more money, it has to borrow from outside sources to start new
projects. It also has to look at the return on these projects more
carefully. Projects that add value would be chosen over those that
take them away.
 2. Value Management

VM is often built as a systematic and intelligent method designed to improve value for
money by carrying out necessary capabilities at the lowest cost while fulfilling
productivity and successful project objectives. Similarly, SAVE (2008) described VM as an
interdisciplinary, systematic effort to review projects to provide the greatest value at the
lowest cost. What is the benefit of VM, and how it works?
VM can facilitate the elimination of extraneous expenses and supports the notion that
project team members should concentrate on the owner-critical operations at the
lowest possible price without compromising important services, reliability, or quality.
Unnecessary costs will be decreased in connection with redundant jobs that do not
add to the value of the project. Through VM, this will assist in reducing the overall
project cost.
Effective time highlights the significance of achieving the owner's desired values
within the predetermined time frame. Project team leaders will be compelled to
manage their time to finish the project on schedule. Effective time use can be
supported by ongoing employment progress monitoring using VM procedures at each
stage.
Quality improvement serves as a guiding principle for project execution at VM. Quality
is a crucial component of the value equation. Quality must be offered to help the
owner grasp the prospective project values. This is supplemented by special priority
functions that ensure quality assurance before carrying out these particular duties.
The conceptual modelling procedure consisted of three steps: defining the model's
constructs, categorising the constructs, and expressing the link between the
constructs.
A formative construct is one of the VM barrier structures, whereas a reflective
construct indicates a successful VM implementation. Collinearity, viewed as
undesirable, is demonstrated by the close link between the formative factors (Hair et
al., 2013). By evaluating the value of the variable inflation factor (identifying the
most important and influential factors).

Additionally, (Othman, 2015; Chua et al.,

1999; Kineber et al., 2021a). exemplifies
the conceptual model that represents the
study's postulated pathways:
First, there is a link between successfully
using VM and removing workshop
dynamics barriers. Second, successful VM
deployment is correlated with
overcoming environmental and cultural
constraints.

Third, there is a connection between successfully implementing virtual machines

and removing standardised obstacles. Fourth, Successful VM deployment is
correlated with removing stakeholders' and knowledge-related obstacles.
3. Risk Management

Risk management is an emerging critical component in the

construction industry. It has gained the attention of industry
practitioners because risks can severely affect the cost, quality,
and schedule performance of a construction project. The risk
management method involves three steps.
identification of risks. It is a procedure for looking into any
risks that could affect the construction project's delivery. By
implementing this method early in the project life cycle, the
client and stakeholders are aware of the risks and can
actively participate in their control. According to Winch
(2002), the first stage in the risk management process is
typically an informal step built on prior experiences in
recognising potential risks.No matter how these risks are
allocated, the organisation is responsible for identifying
potential threats. It is critical to emphasise that risk
management (RM) is about being well-prepared for potential
dangers that could arise suddenly and responding to risks
more professionally. For risk identification, a variety of
methods variously employed, including brainstorming,
interviews, questionnaires, expert consultation, Delphi
methodology, historical data, checklists, etc.

risk assessment. Both individual and cumulative risks are

considered in the study of risks. It aids in the decision-making
process by assisting the client and project stakeholders in
developing their future vision for the likelihood and seriousness of
risk occurrence. An assessment of a typical project's risk can be
done using various techniques. The appropriate method depends on
several variables, including the risk type, project scope, method
cost, flexibility, complexity, completeness, usability, validity, and
credibility. Both quantitative and qualitative analysis of risks is
possible. First, numerical data input and some calculations are
necessary for quantitative risk analysis. Small projects may not
need to follow all quantitative analysis processes, whereas medium
and large-sized projects must adhere to the entire process. Second,
qualitative risk analysis relies on the team's experience to evaluate
the frequency and severity of risks.

risk reaction Based on the outcomes of the first two

phases, there are three possible responses:(1) Risk
Avoidance or Reduction: The early detection of hazards
gives the project client and stakeholders the
opportunity to find strategies for risk avoidance or
reduction, such as redesign or further research into
potential alternatives. (2) Risk Transfer: It permits the
transfer of risk from one party to another in
accordance with each party's capacity to manage risk
while maintaining the overall amount of risk specified
in the contract. (3) Risk Retention: Retaining the risk is
sometimes the only choice.
 CONCLUSSION

Common elements in construction projects include the product's effectiveness,

productivity, and usability. Moreover, to enhance the long-term viability of the
construction project, it is essential to explore the effects of adapting and
comprehending value and risk management.

VM is a multidisciplinary, methodical approach to project evaluation that aims

to offer the most value at the most affordable price. VM can make it easier to
cut back on unnecessary costs, maximise productivity, and increase the quality

The comprehension of risk means the need for an efficient strategy to manage
or reduce the impact on project objectives. Therefore, RM must contribute to
defining the various project objectives during the planning and execution
phases, improve project control, raise the likelihood of project success, improve
communication between project participants, and promote decision-making. It
is an additional step toward improving the effectiveness and practicality of
construction projects so that risks can be recognised and reduced before they
materialise into crises. Therefore, RM has been acknowledged as a crucial
procedure in construction projects to meet project objectives in terms of time,
cost, quality, safety, and good management.
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project objectives”, Journal of Construction Engineering and Management, Vol. 125
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